WA $550m gas pipeline issue crowns frantic day

Australia’s largest bond deal by a non-financial issuer in four years has added to near record levels of activity as banks, companies and international agencies tap the Australian-dollar market for long-term funding.

The $550 million, five-year bond issue from Dampier Bunbury Natural Gas Pipeline is thought to be the largest print from the non-financial sector since a property bond issue in 2006, and contributed to more than $2 billion of bond sales in a frantic day of activity.

Other companies to sell bonds yesterday included real estate investment trust
Mirvac
, which printed $200 million of six-year bonds, a $1.1 billion 2013 bond issue by
National Australia Bank
and a $275 million 10-year deal from the Canadian province of Ontario.

The total of non-government Australian bond issuance now stands at around $75 billion for 2010, according to UBS data, making it the second-busiest year on record.

Driven by favourable pricing conditions in the local market, AAA-rated Kangaroo bond issuance has hit a record level of $30 billion, or 40 per cent of total supply.

Banks, which include well-known domestic and international institutions, have sold $40 billion of Australian-dollar debt in 2010, accounting for more than half the local markets issuance.

“Supply has been well-absorbed this year, especially in the last six months, and depending on what’s in store from the AAA Kangaroos, we might even push closer towards 2009 record," BT Investment Management’s Scott Osborne said.

“The stars have aligned this year for local supply: higher $A yields for investors, a higher $A giving offshore issuers more bang for their buck," UBS credit analyst Chris Viol said.

Related Quotes

Company Profile

The $550 million issue from DBNGP formed part of its plan to refinance its maturing debt. The company set out to raise a minimum of $200 million at a margin of between 275 basis points and 300 basis points, pricing at the wider end but attracting more than double its minimum volume.

The company, which runs the largest natural gas pipeline in Australia, has $1 billion of bank debt due to mature in 2011 and about $1 billion credit-wrapped bonds due after 2012.

“Investors also noted rising participation from Asian funds in recent corporate deals, an investor base that is growing in importance.

“Their participation in primary and particularly in secondary markets is important because they can have different investment drivers," said Commonwealth Bank of Australia’s Rob Kenna.

With over $4 billion printed from 18 issuers, non-financial corporate bond issuance has now surpassed 2009’s level but still only accounts for about 4 per cent of total issuance. But there are signs that true corporate issuance is on the ascendency.

“Non-financial deals have been oversubscribed and pricing has been competitive, which suggests that the market has the potential to grow even larger," said ANZ’s director of debt capital markets Edwin Waters.

Fund managers expect more non-financial deals to come before the end of the year from the resource, property and infrastructure sectors. Household names such as BHP Billiton, Telstra and Woolworths have also signalled intentions to sell bonds into the local market.